Stock Market News

Investec downgrades RBS to 'sell' after recent run

Investec has cut its rating for Royal Bank of Scotland (RBS) from 'hold' to 'sell', saying it sees downside after a recent run in the share price.

"Following RBS' latest +16% six-week 'spike' we believe that the share price (once again) reflects a triumph of hope over reality and should duly correct," said Analyst Ian Gordon.

The broker has kept its target price unchanged at 325p but expects the bank to report a "solidly loss-making performance" over the rest of 2014.

RBS' first-quarter results delivered in May beat analysts' forecasts, though this was largely to do with an unusually low impairment charge and the phasing of planned restructuring spend - only £0.1bn of the planned £5bn over 2014-2016 was taken in the first quarter.

Gordon reckons that a "normalisation" of these two items, as well as the usual seasonality in the Markets Division, will drive a 90% quarter-on-quarter fall in profit before tax to £0.2bn in the second quarter, with a small loss at the attributable level.

This, he believes, will lead to tangible net asset value per share falling to a new low of 361p by the end of the year, before dropping further to 352p in 2015.

"Based on our interpretation of guidance, it would appear that RBS management broadly agrees with us! Time to reinstate shorts."

Gordon said: "We believe that the expected publication of divisional restatements in July, coupled with, on our forecasts, heavy attributable losses through Q2-Q4 2014e will help to drag the RBS debate back to fundamentals and hard numbers rather than a spike in the share price on the back of a somewhat intangible hope of a 'quick fix'."

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